Can concession agreement disputes be arbitrated in China?

0
1684

Legal provisions in China have proven to be fairly inconsistent when it comes to the question of whether disputes in relation to concession agreements should be referred to civil or administrative courts. According to article 12(1)(11) of the amended Administrative Litigation Law of the People’s Republic of China, announced on 1 November 2014, any proceedings commenced by a citizen, legal entity or any other organization on the basis that the administrative agency has failed to legally perform a concession agreement, or has breached the terms of a concession agreement, or has illegally amended or rescinded a concession agreement, must be considered to be administrative proceedings.

Helena_Chen_articleIt is also clearly provided in article 12(2) of the Interpretations by the Supreme People’s Court (SPC) on Several Issues Concerning the Application of the Administrative Litigation Law of the People’s Republic of China, implemented on 1 May 2015, that “any administrative proceedings brought about by a citizen, legal entity or organization in relation to any of the following administrative agreements must be heard by the people’s courts (administrative courts): (1) Government concession agreement …

However, the Public-Private Partnership (PPP) Contract Guidelines (for Trial Implementation), issued by the Ministry of Finance on 30 December 2014, also clearly point out that the nature of the PPP model is fundamentally a civil legal action arising from the government’s procurement of public services from social capital co-operation, and this constitutes a civil legal relationship between two civil subjects. As such, any dispute arising can be resolved either by civil litigation or by arbitration.

Many views have been offered by academics in relation to the nature of concession agreements that can be discussed. However, this article focuses on the compilation of what we can understand from judicial practice.

Prior to the amendment to the above-mentioned Administrative Litigation Law, the SPC rendered a ruling on Hetian City people’s government’s termination of the Hetian City Gas Utilization Project Contract that it had entered into with Xingyuan Company. In addition to the termination, Hetian City people’s government also officially agreed for the Bureau of Construction of Hetian City to take over the natural gas commercial operations initially undertaken by Xingyuan and Tianrui Company.

In this case, the SPC found that even though the contract and the legal relationship between the disputing parties involved certain civil factors, the contract was formed between both parties as equal subjects and thus could not be regarded as a civil legal relationship. As such, the matter was not within the jurisdiction of the civil court and parties could therefore commence administrative proceedings based on the relevant administrative regulations.

In another dispute over the buyback amount pursuant to the termination of a build-operate-transfer (BOT) investment contract regarding a highway construction project, the SPC found that the administrative act causing the buyback was independent from the dispute over the buyback amount, and the parties had no objections to the administrative actions that took place before the termination of the BOT investment contract. In this case, the parties were on an equal legal footing regarding the issue of the payment of the buyback amount, and as such a dispute over the buyback amount could be resolved by referring to civil litigation.

After the amendments to the Administrative Litigation Law, the SPC found, in a frequently-cited ruling on the jurisdiction of the people’s court in Henan Xinling Highway Construction Investment v Huixian City people’s government, that this particular case involved a “typical BOT-model government concession agreement” and further found that “from the goals, responsibilities, subjects, conducts, contents etc., of the contract, the nature of the contract was clearly that of a civil commercial legal relationship and should therefore be viewed as a civil commercial contract”.

It therefore fell beyond the situations described in article 12(1)(11) of the Administrative Litigation Law and article 12(2) of the interpretations. The SPC therefore supported Henan Higher People’s Court’s ruling to hear the case as a civil matter.

In practice, most major arbitration institutions in mainland China, including the China International Economic and Trade Arbitration Commission (CIETAC) and the Beijing Arbitration Commission (BAC), have administered arbitrations regarding disputes arising from concession agreements. Such disputes frequently involve construction, including infrastructure. Arbitrators on the CIETAC and BAC panels of arbitrators, with their abundant experience in hearing construction disputes, are most suited to hearing disputes arising from concession agreements.

However, because of the provisions in the Administrative Litigation Law and the interpretations, there is still a fair amount of uncertainty when it comes to the means of resolving disputes in relation to concession agreements.

This, therefore, has become one of the reasons deterring social capital co-operation from participating in concession projects in mainland China.

If all disputes arising from concession agreements must be heard by administrative courts, it will, on the one hand, raise concerns with social capital co-operation about whether the judges at administrative courts will be biased in favour of the government party. On the other hand, there will also be concerns as to how the government party can exercise its rights over the social capital co-operation in the event that it is found that the social capital co-operation has breached the concession agreement.

In addition, guided by the “One Belt, One Road” (OBOR) national strategy promoted by the central government, many Chinese state-owned enterprises (SOEs) and huge private corporations have begun to participate in foreign concession projects. If disputes arising from concession agreements are not arbitrable under China’s legal regime, this will inevitably render it impossible or immensely reduce the chances for Chinese investors to contract for disputes to be administered by an arbitration institution in mainland China.

To solve these problems, it might be useful to consider Taiwan’s legal regime, in which there is a distinction drawn between the granting of concession rights and investment agreements, whereby any dispute arising from an investment agreement can be resolved by way of civil litigation or arbitration. To avoid further unnecessary debates over this, we can only rely on future legislation to resolve the problem of inconsistencies arising from existing regulations.

HELENA CHEN is a partner and chief representative at the Beijing office of
Pinsent Masons